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Einhorn Has Been on GM Ride for a While

Written by: Eric Rosenbaum10/02/12 - 2:53 PM EDT

Tickers in this article:
GM

NEW YORK ( TheStreet) -- David Einhorn detailed his long thesis on General Motors (GM) on Tuesday, sending the stock into overdrive, but investors should be aware that there's very little that's new in this news.

In fact, Einhorn's firm Greenlight Capital first disclosed a stake in GM in its second-quarter 2011 13F filing, and it's added to it since, reaching roughly 16 million shares in its most recent 13F in August, making it one of Einhorn's largest publicly disclosed stock holdings. Einhorn also said during a July conference call with investors that GM was undervalued, when shares had dipped below the $20 mark.

Still, Einhorn's presentation at the Value Investing Congress in New York has sparked a rush of buying interest in the automaker, whose shares were trading up nearly 3% at $23.70 on volume of 17.8 million, more than double its average daily churn.

Any long call by a prominent hedge fund manager is typically a good thing for a stock and Einhorn's endorsement carries more weight than most -- especially since he is better known for his vocal short positions.

The specifics of Einhorn's long thesis on GM included:  auto sales being better than expected and possibly returning to previous highs  the fact that the company has cash to buy out the government's stake  a belief that Europe will get better  a belief that company's pension risk is overblown

Matt Stover, analyst at Guggenheim Partners, said in an email to TheStreet that he agrees that auto sales may recover to former highs, but not in an "investable timeframe." He added that Europe may recover too, but more important is if GM has the right operating plan to capitalize on it. As for the pension risk, Stover believes is it is either a significant unfunded liability or requires an expensive pension annuitization program with Prudential -- in effect, he both agrees and disagrees with Einhorn on this one.

The talk of the market buying out the government's stake at a premium could move the stock all on its own, especially when it's Einhorn talking about it. He argued the company purchase the federal government's 500 million shares at $30 each, and still be left with $23 billion in liquidity.

"You know the markets. They can get a flutter when 'smart people' speak," Stover said, adding that the market thinking about the prospect of a GM repo of the government stake would excite interest in particular, and for good reason. "Any time a 'smart person' brings this up the stock tends to get excited because you have every desk trader in America looking at this stock."

The best thing that can be said is that it looks like Einhorn is still on board with the GM ride, but it's worth noting it's a ride he's been on for a while. The market says Einhorn is making a big long call on GM, but one could counter, Einhorn is simply talking his book, as many hedge fund managers do. And his book on GM has been getting bigger.